CSE Global - UOB Kay Hian 2020-02-28: 4Q19 Slightly Ahead Of Expectations; Strong Order Backlog To Drive Growth

CSE GLOBAL LTD (SGX:544)

CSE Global - 4Q19 Slightly Ahead Of Expectations; Strong Order Backlog To Drive Growth

CSE Global’s 4Q19 core net profit of S$7.8m (+54%) came in slightly ahead of expectations, with full-year performance forming 105% of our full-year estimate. Earnings were driven by strong revenue growth of 21.0% y-o-y in 2019 with broad-based growth across all regions.
Order intake soared 52.1% y-o-y, setting up for a strong 2020. We raise our 2020 and 2021 net profit by 4.1% and 3.6% respectively.

CSE Global (SGX:544)’s core net profit (excluding forex) of S$7.8m (+54% y-o-y) in 4Q19 came in at a small beat, with full-year core net profit of S$23.1m (+22%) forming 105% of our full-year estimates.

Earnings were supported by a strong revenue growth of 21% y-o-y in 2019. Revenue for O&G segment grew 61.7% y-o-y and 18.7% y-o-y in 4Q19 and 2019 respectively, driven by higher time and material revenue as well contribution from newly-acquired Volta.
Further, the O&G segment also saw higher margins due to improvement in sales mix, with EBIT for the segment growing 33.4% y-o-y in 2019. The Asia Pacific region recorded a 28.8% y-o-y growth in 2019 revenues due to higher recognition of revenues for projects in the infrastructure and mining sectors in Singapore and Australia.
We note that the radio communication business in Australia surged 38% y-o-y to S$64.8m y-o-y in 2019 which we understand was driven by its acquisition of RCS Telecommunications in 1H19.

For 4Q19, order intake soared 52.1% y-o-y at S$156.1m (oil & gas: S$189.8m, infrastructure: S$24.2m, mining: S$16.0m), bolstered by the two major O&G greenfield projects worth S$103.7m secured in Oct 19, newly-acquired Volta’s orderbook and higher growth in flow orders.
Factoring in the higher order intake this quarter, the group ended the year with an outstanding order of S$307.3m (+69.8% y-o-y).

We believe the year-end orderbook backlog backed by its latest greenfield project wins as well as the full-year contribution from Volta sets CSE Global up for a strong 2020. The group is anticipating a steady flow of orders from its existing customer base and is also pursuing sizeable contracts from Singapore infrastructure government projects as well as in the O&G space.
Further, management re-iterated that it is continuously on the lookout for value accretive and strategic acquisitions to grow the business. Overall, management expects a better performance in 2020.

CSE Global has proposed a final dividend of 1.5 S cents per share, bringing total dividend to 2.75 S cents per share (unchanged from 2018).
CSE Global has adopted an absolute DPS payout of 2.75 S cents/ share since 2014 and we are expecting the same level for 2020, translating into a generous dividend yield of 5.0%.

We raise 2020 and 2021 net profit estimates up by 4.1% and 3.6% as we factor in a slightly higher orderbook. We also introduce our 2022 net profit forecast of S$31m.
Risks include lower-than-expected project wins and weak oil prices.

Maintain BUY with a higher PE-based target price of S$0.72 (previously S$0.70), pegged to 13.3x 2020F PE,or +0.5SD above its 5-year forward mean PE.
See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.

Joohijit Kaur UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-02-28

SGX Stock Analyst Report BUY MAINTAIN BUY 0.72 UP 0.700